Thursday, April 04, 2013

Goodbye Marc Fagel, and Good Riddance

Routine news from the Securities and Exchange Commission yesterday: Marc Fagel, director of its San Francisco office, was leaving to become a partner with Gibson, Dunn & Crutcher, a leading securities fraud defense firm.

It just seemed like yet another twirl of the revolving door. But it wasn't. This was actually the long-overdue departure of a quintessential example of the "captured regulator."

Fagel was the driving force behind one of the darkest chapters of the SEC's recent history: Its 2006 probe of research firm Gradient Analytics and its client Rocker Partners, and the subpoena of reporters who told the truth about the company that inspired the probe, Overstock.com, and its crazy CEO, Patrick Byrne.

Gradient's "crime" was that it questioned Byrne's management and Overstock's accounting and  earnings capacity, which was richly borne out by future events.

The probe was based on trumped-up allegations of collusion between Gradient and Rocker, as became clear when it emerged that the former Gradient employees who were the SEC's star witnesses -- as well as Byrne's, in a civil suit he had filed -- had been fired for cause. After all the publicity died down, Gradient and Rocker were quietly exonerated.

It was bad enough that Fagel, who spearheaded this wrong-headed witch hunt, let himself be led around by the nose by a CEO who was so unhinged that he directed lewd and obscene remarks to a reporter for Fortune, Bethany McLean, and fantasized that a fictional character from the Star Wars movies had ruined his business.

All this was known to Fagel, and he should have been canned for poor judgment. But on top of that idiotic Keystone Cops routine, there was the little matter of the subpoenas.

They were issued to three leading financial reporters, Herb Greenberg of Marketwatch, Jim Cramer of TheStreet.com,  and Carol Remond of Dow Jones News Service, who had been  critical of the company's management and accounting..

The subpoenas, which were whipped up by Fagel and other SEC lawyers who swallowed Byrne's conspiracy theories, were such a major embarrassment that they made the front page of the New York Times when they were withdrawn by SEC chairman Chris Cox. 

The shamefaced Cox actually scolded his own enforcement division for doing such a harebrained thing.

But it was even worse than it appeared to be at the time. At the same time that Fagel & Co. were chasing their tails at the behest of a nutty CEO, Bernie Madoff was ripping off his customers and the major Wall Street bankers, including many with large operations in San Francisco, were stealing from everyone in sight.

So what happened to the official who dreamed up this absurd waste of government resources? He was promoted in May 2008, just in time to not cover himself in glory during the financial crisis that was in the process of unfolding.

And now he's where he belongs, defending bad guys. Which was pretty much his role in the Gradient/Rocker investigation. Don't let the door hit you on the way out, Fagel.

Byrne, meanwhile, has crawled back under a rock, emerging briefly in January when he was arrested for trying to carry a gun on a plane. Since he no longer can coax regulators to do his bidding, he has taken to crazy rants in his Deep Capture blog, which is run by the disgraced ex-journalist and fantasist Mark Mitchell.

Byrne and Mitchell are now ensconced in a libel suit in Canada that, I understand, will be keeping them both very busy through 2014. The suit against Byrne is such an open-and-shut case of craziness and fabrication -- a minor stock promoter was accused of Al Qaeda connections -- that none of Byrne's dwindling number of pals in the media, not even the Utah press corps, have taken up the cause.

Byrne has since stepped down for "medical reasons." I understand doctors have been probing a rupture in his conscience.

When Byrne was busted in that gun incident, a police report stated that he sleeps with a Glock by his side every night. That's odd. Why does he need a gun, or even a teddy bear, when he has an entire regulatory agency and the likes of Marc Fagel to do his bidding?

© 2013 Gary Weiss. All rights reserved.
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My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

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